Holiday Pay Changes from April 2020

You would think calculating how much holiday pay an employee should receive would seem a straightforward process. However, various court decisions over the past 5 years have changed this, meaning employers now face a range of additional circumstances they need to consider when calculating holiday pay.  

By law, you must give your staff 5.6 weeks of holiday per year – pro-rated for part–time staff. However, this becomes more complicated when you have staff who work irregular hours or shifts. In these circumstances, an employer should normally look back at a worker’s previous 12 paid weeks to calculate what the worker should be paid for a week’s leave. Overtime that the employer is contractually obliged to offer and that employees are required to work must also be included in holiday pay. Employers should also include commission payments when calculating holiday entitlement for employees whose pay is commission–based.  

The Good Work Review by Matthew Taylor made recommendations on extending the holiday pay reference period from 12 weeks to 52 weeks. The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will bring this change into force from April 2020 in the UK. The primary reason for this change is to ensure that workers in various roles, particularly casual and zero-hours workers, are treated fairly and equally, and are not disadvantaged when taking their leave during quieter periods. This includes ensuring that paying casual workers reflects this fair treatment.

The Department for Business, Energy and Industrial Strategy (BEIS) have said the 52 week reference period will work the same way as the 12 week reference period currently does. Employers will need to count back the last 52 weeks that an employee worked and received pay. Any weeks where no pay was received will be excluded. If an employee has worked for less than 52 weeks then as many whole weeks of pay information that are held will be included. This may cause concerns for employers as this could potentially span across two tax years.  

Employers should have internal processes in place to ensure the voluntary overtime is recorded, especially for the 52 weeks prior to 6th April 2020 and continue to do so thereafter. It is important to assess what pay components you will cover and whether this could trigger claims for backdated holiday pay. Employers need to make sure those within the organisation who are responsible for calculating these payments are aware of and trained on the new requirements. HR or legal advice can be sought, and further guidance is expected to be released by the Government nearer the time.  

AAB can work with you to facilitate the calculation of average holiday pay for workers. For more information please contact Gillian Kinnaird  or your usual AAB contact.  

By Gillian Kinnaird, Payroll Assistant Manager at Anderson Anderson & Brown LLP. 

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